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Risk‐Sharing and the Term Structure of Interest Rates

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  • ANDRÉS SCHNEIDER

Abstract

I propose a general equilibrium model with heterogeneous investors to explain the key properties of the U.S. real and nominal term structure of interest rates. I find that differences in investors' elasticities of intertemporal substitution are critical in accounting for the dynamics of nominal and real yields. The nominal term structure is driven primarily by real shocks so that it can be upward sloping regardless of the correlation between nominal and real shocks.

Suggested Citation

  • Andrés Schneider, 2022. "Risk‐Sharing and the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 77(4), pages 2331-2374, August.
    • Handle: RePEc:bla:jfinan:v:77:y:2022:i:4:p:2331-2374
    DOI: 10.1111/jofi.13139
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